Market Commentary – November 6, 2020

Kevin Jock

6th November 2020

    U.S. election fatigue setting in on day 3 as neither party concedes. Democratic nominee Joe Biden inches closer to the needed 270 electoral votes to win presidency. A definitive win in either Pennsylvania, Georgia, Nevada or North Carolina would assure victory. On Thursday Biden addressed there was “no doubt” he would be elected the 46th president of the United States. Meanwhile, Trumps’ administration files lawsuits as a path to victory claiming illegal vote counting post-election day. Georgia and Michigan judges have already thrown the cases out of court citing a lack of evidence.

    As investors abandon pre-election risk-off positioning, momentum continues Thursday with Wall Street rallying for 5 consecutive days regaining lost ground from the week before. Though a gridlocked government would infer a lower probability of a timely and sizeable stimulus package, it would also dim prospects to enact tougher corporate regulations or taxes.

    America’s uncertainty failed to hurt European sentiment as broad-based benchmarks followed suit to 2-week highs. Despite a resurgence in COVID cases, strong Q3 earnings and optimistic company outlooks lifted investor spirits. Likewise, fresh quantitative easing buoyed the FTSE higher.


Figure 1 (Source: IS Prime): Bitcoin daily chart : Recent meteoric rise in Bitcoin, sees the cryptocurrency only 22% away from all time highs back in 2017

    Mixed opening from Asia with Australia and Japan edging into positive territory whilst Hong Kong pointed lower after Beijing reigned in on Ant Group’s $37bn IPO. Chinese authorities suspended the IPO, potentially up to 6 months on the basis it would cause market instability evident from the recent frenzy in both Hong Kong and Shanghai exchanges.

    With risk appetite increasing, lackluster demand saw the American greenback retreat further. The pound and euro, previously underperforming among majors, exhibited significant gains on Thursday. Up 155 and 115 pips respectively. Similarly, the Aussie and Kiwi hit multi-week highs. Among exotics, a ferocious break through the 31.000 support has the Thai Baht settling at 30.700. China’s yuan slips further after the central bank set a weaker USDCNH mid-point. Elsewhere, gold soars $44 to $1,949 and bitcoin breaks $15,500 amid authorities auctioning off previously seized Silk Road cryptocurrencies worth $1bn

Headliner to Review

  • The official bank rate remains at 0.1%. The Bank of England expanded its easing and raised its asset purchase liability by 150 billion pounds to 895 billion pounds to reduce the negative effects to the British economy from another lockdown.
  • The unemployment claims in the United States dropped by 7,000 last week to 751,000, which is more than market expectations. The average number of new applications for unemployment assistance in the four weeks was 787,000, a decrease of 4,000.
  • The Federal Reserve keeps the near-zero interest rate policy and the ongoing bond purchase program, which leads to a negative effect to the US dollar. The Fed is working hard to stimulate economic growth after the COVID-19 pandemic caused business shutdowns and severely damaged the economy.
  • It is similar in Australia, the RBA said that the board remains prepared to expand the bond-buying program. The RBA take on QE correlates to that statement by the Federal Reserve in the US, as the US central bank pushed for additional fiscal and monetary stimulus to boost the economic recovery.

Headliner to Watch

  • Headline employment figures expected to keep improving in America with employment change higher by 595K and the jobless rate lower to 7.7%. Despite a lack of fiscal stimulus, the labour market is expected to continue to improve as long as the nation forgoes lockdown amid rising coronavirus cases.
  • Likewise, Canadian employment change expected to keep positive with 56K people finding jobs, though the unemployment rate remains at 9%.
  • U.S. election count continues through Friday, with most battleground states expected to finish counting the last mail-in ballots by the days end. If neither party concedes and U.S. courts become involved, definitive results may take weeks.

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Antony Tan
Ben Li
Kevin Jock